The Economic Cost Of Ad Fraud In OTT - Info.cheq.ai
THE ECONOMIC COSTOF AD FRAUD IN OTT
THE ECONOMIC COSTOF BAD ACTORS SERIESIn a series of reports, we reveal the monetary cost causedby bad actors on the internet. CHEQ has commissionedeconomist, Professor Roberto Cavazos at the University ofBaltimore, to undertake the first ever in-depth economicanalysis of the full scale of internet harm. For the first time,using economic analysis, statistical and data analysis, wemeasure the global economic price paid by businesses andsociety due to problems including ad fraud, online bullying,and fake news.2 THE ECONOMIC COST OF AD FRAUD IN OTT 2020The internet has heralded an economic revolution.The internet economy of the G20 countries alone is worthmore than 4.2 trillion representing 5.3% of their total GDP.However, as Tim Berners Lee, the father of the internethas put it: ‘‘While the web has created opportunity, givenmarginalized groups a voice, and made our daily lives easier,it has also created opportunity for scammers, given a voiceto those who spread hatred, and made all kinds of crimeeasier to commit.’’
THE ECONOMICCOST OF OTTFRAUDIn this report, we focus on the globaleconomic cost of Over the Top (OTT)fraud. OTT refers to the delivery of filmand television content via the internetwithout the need of viewers to subscribeto a cable or paid television service. Thishas caused a revolution in viewing habits,with the number of adults canceling a payTV service set to hit 55.1 million by theend of 2020. In the place of traditionalTV, marketing budgets are flowing to thepromised land of OTT: harnessing thepower of the big TV (for movies, seriesbinging or gaming) with brands targetingonly the most interested consumers withthe most relevant messages at the righttime. In the move towards OTT, half of allad buyers plan to increase their OTT adspend in the next 12 months1. However,as with any nascent market in the digitalspace, as this report outlines, ad fraudfollows2.In the following pages, we reveal that OTT adfraud will cost advertisers 4 billion in 2020.Left unchecked the problem will continue togrow, costing the global economy 5.2 billionby 2021.There are significant further indirectcosts — notably erosion of trust and potentialbrand impact. These could damage thisevolving industry if not tackled by all playersin this nascent ecosystem.Professor Roberto Cavazos, University ofBaltimoreProfessor Roberto Cavazos, Executive inResidence at the Merrick School of Businessat the University of Baltimore, has over 25years’ experience in economic analysis,statistical & data analysis, project and programmanagement and policy, and technology withextensive experience in financial, data andhealth care fraud analytics and analysis forgovernment and private sector organizations.1March 2019 poll of 350 US marketers conducted by the Interactive Advertising Bureau2For a complete analysis of ad fraud, and its impact across the digital ecosystem, see THE ECONOMICCOST OF BAD ACTORS ON THE INTERNET: Ad Fraud (2019) www.cheq.ai/adfraudcost3 THE ECONOMIC COST OF AD FRAUD IN OTT 2020UNCOVERING A 4 BILLION PROBLEM
THE OTTMARKETMost recently, Comcast Corp.’s soon-tolaunch Peacock service also announced itsprimary source of revenue will be ads, notsubscriptions, allowing viewers the option ofstreaming for free, shows such as The Office,and This is Us (with just five minutes of ads perhour). Under this ad-enabled OTT model, ratesare paid, with inventory selling at CPMs of upto 20. This is due to the promise of "TV withbenefits".4 This refers to the ability of brandsto target audiences on their screens based ondemographics and interests, behaviors andgeographic location, previously unavailable,with traditional television buys.THE SIZE OF THE OTT ADVERTISING MARKET: 23.8 BILLIONResearch from Digital TV Research and WARC finds that the global advertisingspend on OTT is 23.8 billion.5 This OTT advertising market will continue its growth,rising to 46.6 billion by 2023.3Netflix CEO Reed Hastings told shareholders in 2019: “When you read speculation that we are moving intoselling advertising, be confident that this is false".4Darren Olive, EVP, National Advertising Sales and Strategy at Crackle Plus in IAB: OTT Streaming VideoPlaybook for Advanced marketers5WARC: Global Ad Trends Avod Spend4 THE ECONOMIC COST OF AD FRAUD IN OTT 2020The standard-bearer in the OTT markethas been Netflix, whose narrative hasbecome a case study staple in businessschools. Muscling in on incumbent studios,Netflix original productions have garneredAcademy and Emmy-awards, whichalongside a portfolio of licensed contentworth 19 billion, are streamed to158.3million global subscribers. Though Netflix isstrictly non-advertising funded3, globally adspending is at new heights for players suchas ABC Go, Crackle, Hulu, Tubi, The RokuChannel and Pluto TV, and ITV Hub.
THE US MARKETUnsurprisingly the US market makes up a large part of the OTT advertisingspend of 23.8 billion. Research firm, eMarketer, finds that US marketers alonewill spend 8.88 billion on OTT ads in 2020 – a 28% rise from 2019.Smart TVRokuConnectedgame consoleAmazon Fire TV54%44%35%33%GoogleChromecastBlu-Ray playerApple TV16%14%12%Source: eMarketer, July 2019In the US, Hulu is a prominent leader. The platform generated 1.82 billion in 2019and forecasts 2.24 billion in 2020 and 2.27 billion for 20216. In 2018, Roku, a goto OTT partner, with 29.1 million logged-in households, had estimated advertisingrevenue of 290 million7. Comcast predicts Peacock will have at least 30 millionactive accounts and 2.5 billion of revenue by 20248. In addition, 2020 is an electionyear, with an estimated 10 billion spend alone and OTT emerging as a focus forbudgets—one frontrunner has already stated their intent to advertise on OTTproviders9. Not only will this increase advertising expenditures in OTT, it will bringmore attention to the advertising potential of the sector.From Media Post .html Accessed January 7. 2020.From: vertising-revenue-will-surpass-its-player.7aspx, 2020.8Bloomberg: 17 January 2020: Hate TV Ads? Peacock May Change Your MindA Look into Why Joe Biden’s Campaign Is Investing in OTT This Election Cycle adweek.com,9November 27, 20195 THE ECONOMIC COST OF AD FRAUD IN OTT 2020CONNECTED TV USER PENETRATION BY DEVICE, IN THE US.
BEYONDTHE USAOTT in India grew from 638 million and isforecast to achieve 1.7 billion by 2023.13 In2020 it is reported that India will have 500million OTT users.14 While the exact size ofthe advertising spend in India’s OTT market isunknown, the majority of OTT platforms areadvertiser supported while the country's OTTplatforms rank third in advertising revenue afterGoogle and Facebook.15 Elsewhere, in the U.K.,Total OTT revenues in the UK will rise at 10.3%between 2018 and 2023, to reach 2bn.Digital TV research: Asia Pacific OTT TV and Video Forecasts1011Source: PWC Global Entertainment & Media Outlook 2019-202312Variety: China’s Booming Streaming Market is Opening to Specialty Platforms13Source: PWC Global Entertainment & Media Outlook eaming-services.html15Decoding the scope of OTT platforms for today's advertisers exchange4media.com December 17, 2016 THE ECONOMIC COST OF AD FRAUD IN OTT 2020Despite US strength, Asia Pacific countriesare set to hit 11 billion in 2020 in OTTadvertising revenue, bolstered by thefast-growing markets of India and China10.PwC has pointed out that the long-termtrajectory will see Asia Pacific continue tolead OTT growth11. The transformationof China’s video market is creatingopportunities for specialty players, whilethe three largest OTT players (Alibaba’sYouku, Tencent Video, and Baidu’s iQIYI)increased both subscriber numbers andadvertising revenues.12
CALCULATINGTHE FRAUDCOSTS: 4 BILLIONGLOBALLY IN 2020global spend on OTT by the end of 2020 of 23.8 billion, we see that the economic wastefrom ad fraud in OTT will hit 4 billion in 2020.Left unchecked, at current rates of growth,marketers will see losses from OTT fraud risingto 5.2 billion in 2021.LACK OF TRANSPARENCY:A BREEDING GROUND FOR FRAUDOur research conforms with economic as well as crime and fraud research. This necessitatesthat as a sector grows, is complex and has a lack of standards, transparency, and agreedpractices there is ample opportunity for fraud. In the OTT market, there is as yet no supportfor third-party ad serving and measurement. OTT advertising globally is still fragmented,lacking industry-wide standards and guidelines. OTT may perpetuate the situation, asin digital ad fraud before it, where a number of complex interests compete. It has beenpointed out that we see an entirely new category of stakeholder than traditional TV buys,that is the exchanges that operate the programmatic marketplaces. Each stakeholder hasspecific interests in the ecosystem, and no one has control over all the variables that arerequired to optimize programmatic16. Fraud will continue until behaviors change due torevised business practices and transparent detection of invalid impressions in a consistentmanner.16Edward C. Malthouse, Ewa Maslowska & Judy U. Franks (2018) INTERNATIONAL JOURNAL OF ADVERTISING:Understanding Programmatic TV advertising7 THE ECONOMIC COST OF AD FRAUD IN OTT 2020Our empirical research suggests thatthe fraud in OTT ecosystem is alreadyprevelant. Based on data on billions of OTTimpressions, fraud levels are at 17%.Others put the figure closer to 18-20%.Based on a 17% level of fraud set against
Typically, OTT fraud includes many of thesame manifestations that plague the entiredigital advertising ecosystem. The mostcommon frauds involve networks of botsgenerating massive amounts of fraudulenttraffic.Illicit phone appsIn addition, companies like TutuApp,TweakBox, and the now-defunct App Valleywere distributing ad-free copies of streamingservices, stopping ad revenue, by abusingApple’s enterprise certificate program.17Geographic misrepresentation anddevice fraudFrauds include misrepresentation (whena fraudster sells ads claimed to be shownto U.S. users, but are actually displayedon devices outside the country), devicebased fraud (when a single device reports ahigh number of ads during a given period,sometimes hundreds of ad calls) and appbased fraud (when an ad-supported OTTapp shows a very high rate of activity for theentire day).Server-side ad insertion fraudServer-side ad insertion (SSAI) (also knownas "ad stitching" or "dynamic ad insertion"is a feature of OTT environments, which adverification players have adapted to detect.SSAI was developed on the publisher-sell-sideto deliver video content ands in a single streamto a user, providing a seamless experience.However, fraudsters use machines to mimicSSAI proxy servers, and because legitimateSSAI is such a common practice in OTT/CTV, their schemes are often overlooked asharmless. In addition fraudsters can also maskthemselves behind legitimate and sometimeswhitelisted SSAI proxy servers.Copyright infringementThere is also widespread copyrightinfringement and ripping of content. Thisis already creating distorted measurementsin campaigns, diminishing early trust in thesector. In several instances, CHEQ fraudexperts have blocked illegal streaming sitesfrom attempting to hijack the content oflegitimate OTT video players and placingthe ripped video content on their piratedsite. This type of fraud captures the videocontent for free and illegally monetizes itwith the loading of ads around the page,(which are often porn advertising). Thisbrings up long term issue of piracy, loss ofrevenue, and brand safety.Live eventsIn addition, clear calibrations of fraud detectionare also required by ad verification players dueto the prevalence of live events. The volume ofsimultaneous ad-calls can look like fraud-likeblips18. Asaf Butovsky, CHEQ CTO explains:"This can just be a matter of working with ourpartners involved in the live event, so we areforewarned. Clearly most live events tend to bescheduled. It therefore simply involves ensuringour algorithms are primed for this while stillensuring that only valid, human, impressionsare served."17The Verge (February 20 2019) This illicit iphone app store has been hiding in plain sight18Examples of live events include Amazon's UK Premier League rights: UK Amazon paid 117 million for the rights tostream a block of midweek games in early December all 10 Premier League matches on the Boxing Day Holiday as partof a three year-deal, attracting advertisers including Mercedes Benz, Heineken and Papa John's. The top game pulledin 2 million viewers8 THE ECONOMIC COST OF AD FRAUD IN OTT 2020TYPES OFOTT FRAUD
HIGH CPMsATTRACTINGBAD ACTORS9 THE ECONOMIC COST OF AD FRAUD IN OTT 2020Contributing to the rise of fraud is the high costof CPMs in the OTT space. Programmatic OTTad rates can range from 18 to 40, accordingto Mark Douglas, CEO of SteelHouse, anad-tech firm that provides self-service mediabuying tools to brands. Those rates are nearlydouble what networks charge in direct dealsbecause they charge additional fees to movethe ads into connected devices, and buyersare willing to pay up for the promise to bettertarget TV ads.19We find that the high cost of CPMs in thesector continues to attract sophisticated fraud,and that as growth and platforms increase, thismay further drive the fraud rates to 20% andbeyond in 2020.19Business Insider: Ad-tech companies and networks are pinning hopes on streaming TV, but OTT is full of headachesfor marketers
The level of competition, high awarenessand shifting habits, will see more consumersand advertisers switch on to OTT. Thereare already positive indicators of success.In 2019, data from Extreme Reach, Innovid,and FreeWheel found that connectedTV views now account for nearly half(45%) of all digital video ad impressions.20Campaigns by Volvo on Roku and Samsunghave seen a 35% average sales lift for thecompanies21. At the same time, OpenXand the Harris Poll found that 72% of OTTconsumers in the US recall seeing an ad,and 66% learned about a new brand froman OTT ad. There is genuine buzz andexcitement about the opportunities. LindaYaccarino, chairman of advertising andpartnerships at NBCUniversal announcingthe partnership of advertisers, State Farm,Target and Unilever, to its OTT service, said:“With Peacock, we’re giving consumersthe free service they want and advertisersthe reach and scale they desperatelyneed—this is the best thing to happen toeveryone’s screens in a long time."Alongside Peacock, Amazon and Roku areinvesting in more programming to theirrespective ad-supported services IMDb TVand Roku Channel.At the same time, Quibi, a buzzy mobile-videostartup from veteran Hollywood producerJeffrey Katzenberg, has pinpointed OTTdevelopment in its roadmap. Meanwhileviewers spend more than 200 million hours aday watching YouTube on TV sets. In addition,the dust is still settling around Disney andHBO Max.Other OTT markets are also growing fast.Brands are also switching on to in-game adson consoles such as Xbox hyper-targetedads. Companies, such as Anzu, provideprogrammatic ad campaigns for Fortune 500brands, including AT&T, in a bid to targetthe 148 billion global gaming audience.Here issues of fraud and viewability arebeing tackled at the beginning of in-gamingadvertising's evolution.However, conversely, a mix of more supply,greater buying at scale, and high CPMs isgrabbing the attention of fraud operations,and sophisticated fraud operations areembedded in the ecosystem.This occurs as the growth of OTT advertisingand services will continue to be rapid, andglobal. With this rise, the challenges of fraudmust not be ignored as we seek to ensuretrust, transparency and efficiency in thisevolving and crucial market.20eMarketer: Connected TV Trends 2020 gement/10 THE ECONOMIC COST OF AD FRAUD IN OTT 2020FUTURE GROWTHOF OTT (ANDFUTURE FRAUD)
In the US, Hulu is a prominent leader. The platform generated 1.82 billion in 2019 and forecasts 2.24 billion in 2020 and 2.27 billion for 20216. In 2018, Roku, a go-to OTT partner, with 29.1 million logged-in households, had estimated advertising revenue of 290 million7. Comcast predicts Peacock will have at least 30 million
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